Utah wants feds to forgive $161M Central Utah Project debt

Banks sought bailouts. Carmakers sought bailouts. Now Utah water officials want Congress to forgive $161 million that the Central Utah Project owes the federal government, so it can afford to build hydropower plants on its Diamond Fork pipeline.

The Obama administration, however, said Thursday that the proposal gives it heartburn.

"The administration has serious concerns about losing our ability to recoup the federal investment made" in CUP dams and pipelines that bring water from eastern Utah to the Wasatch Front, Reed Murray, director of Interior Department's CUP Completion Act Office, told a congressional hearing.

Reps. Jim Matheson, D-Utah, and Jason Chaffetz, R-Utah, are pushing a bill at the request of local CUP leaders to "defer indefinitely" local repayment of $161 million, the portion of overall CUP costs that were intended to be repaid someday through Diamond Fork hydropower sales.

Local water officials told a House Natural Resources subcommittee that they found the $161 million debt would force selling Diamond Fork hydropower at above-market rates, and they doubt they could find anyone to develop it under that condition.

"In essence, any developer of power at Diamond Fork starts in an economic hole of $161 million before installing any power turbines or constructing any transmission lines," testified Donald A. Christiansen, general manager of the CUP-overseer Central Utah Water Conservancy District.

He said another problem with hydropower from the Diamond Fork pipeline (which delivers water from Strawberry Reservoir to Utah County) is that power generation is secondary to water release and cannot be scheduled to meet peak power demands. So it is not considered a firm source, and it has less value in energy markets.

Utah County Commissioner Gary Anderson testified, "It simply is not economically feasible to develop hydropower if the 'sunk' costs from the upstream development must be factored into the economic development equation."

He added, "No one benefits from a wasted resource that is never used and a project that is never built," and that would likely be the result if the debt is not forgiven.

CUP officials envision building 50-megawatt Diamond Fork hydroplants if the debt is forgiven. Anderson said that is enough to supply the power needs, for example, of his hometown of Springville for a year.

Matheson said passing the bill would allow plants to actually be built, and contracts written that would give the federal government a share of power sale proceeds.

"At the end of the day, if this legislation moves forward, we have the ability to move forward with a hydroelectric project, (and) the ability for the government to receive a revenue stream. It sounds like a win-win," Matheson said.

Subcommittee Chairwoman Grace Napolitano, D-Calif., was supportive, saying, "Congress needs to do everything it can to expand hydropower," because it "is a cheap source of clean energy that can help America reduce carbon emissions and stimulates rural economies in the West."

But qualms by the Obama administration could hinder passage.

Murray testified while the bill says repayment of the $161 would be deferred indefinitely, "in essence, this would authorize a form of debt forgiveness."

He added, "It is unclear what the long-term fiscal implications of enactment of this legislation would be and how the U.S. Treasury would be made whole."